Trans-Pacific Partnership deal reached after marathon talks

The 12 countries in the Trans-Pacific Partnership (TPP) announced on October 5th that they reached a final agreement.

Analysis

After years of negotiations, the pact brings together 12 countries in the Asia-Pacific region that represent over 36% of global economic output. It banishes the ghost of the World Trade Organisation's failed Doha round of talks, and proves that multilateral trade deals are still possible. The details of the deal have yet to be released, but leaks suggest that compromises have watered down the final version, reducing its potency. Nevertheless, any reduction of trade and investment barriers involving the US and Japan, two of the three largest economies in the world, will provide a significant jolt to global trade.

Painstaking talks were needed to overcome sticking points in the areas of dairy, agriculture and automobiles. Negotiators also resolved disagreements on pharmaceutical patents and data protection. Still, the TPP pact will amount to nothing unless the legislatures in the 12 countries ratify the deal; a process that will be particularly difficult in some countries. The agreement is 30 chapters long and politically contentious. The final text will undergo a legal review before it is released around the start of November.

The highest hurdles will be in North America. The US passed Trade Promotion Authority in June, which improves the chance of ratification by Congress, as lawmakers cannot derail the bill by adding amendments. Still, the TPP is despised by labour unions, and will thus not get much support from Democrats, particularly as an election approaches in November 2016. Moreover, lobbyists from the pharmaceutical, auto and tobacco industries are already contacting lawmakers to protest. The president, Barack Obama, will need the support of the next speaker of the House of Representatives, who will have to persuade Republicans that the party's free-trade ideals should outweigh antipathy towards the Democratic president's broader policy agenda.

Canada's parliament has been dissolved ahead of an election on October 19th, and ratification must wait until a new government is formed. The left-of-centre New Democratic Party, a fierce critic of trade liberalisation, has slipped to third in the polls, bolstering the chance of Canada approving the pact.

Impact on the forecast

It is a close call, but we now think ratification is more likely than not. Changes to our forecasts will vary depending on each country's exposure to the agreement. We will publish more in-depth analysis looking at the implications for industries and countries.